As a company becomes more conservative with respect to working capital policy, it would tend to have a(n)

Increase in the ratio of current liabilities to noncurrent liabilities.
Decrease in the operating cycle.
Decrease in the quick ratio.
Increase in the ratio of current assets to noncurrent assets.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. A conservative working capital policy results in an increase in working capital (current assets – current liabilities). It is typified by a reduction in liquidity risk. Increasing the current ratio, whether by decreasing current liabilities or increasing current assets, minimizes the risk that the company will not be able to meet its obligations as they fall due. Thus, an increasing ratio of current to noncurrent assets
means that a company is forgoing the potentially higher returns on long-term assets in order to guard against short-term cash flow problems.